Parthasarathy Venkates Babu Vs ITO (ITAT Bangalore)
Bengaluru ITAT: Section 54F Exemption Cannot Be Denied Merely for Non-Deposit in Capital Gains Account Scheme
The Bengaluru ITAT held that exemption under section 54F cannot be denied merely because the assessee failed to deposit the unutilised sale consideration in the Capital Gains Account Scheme (CGAS) before the due date under section 139(1), where the entire amount was ultimately invested in constructing a residential house within the statutory period. The assessee had sold a property for ₹1.28 crore, purchased a plot, and completed construction of a residential house within the prescribed three-year period. However, the Assessing Officer restricted the exemption on the ground that the unutilised amount had not been deposited in the CGAS before the due date for filing the return and consequently disallowed ₹24.08 lakh of the claim under section 54F.
The Tribunal observed that section 54F(4) is intended to apply where the assessee seeks to retain the unutilised capital gains beyond the due date while still claiming exemption. Where the assessee actually invests the capital gains in the purchase or construction of a residential house within the time permitted under section 54F(1), denial of exemption solely for non-deposit in the CGAS is not justified. Relying on the Karnataka High Court decisions in K. Ramachandra Rao and Narayan Ravi Prakash, the Tribunal held that the assessee was entitled to the full exemption and directed the Assessing Officer to allow the deduction under section 54F as claimed. The assessee’s appeal was accordingly allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. This appeal by Sri Parthasarathy Venkatesh Babu relates to assessment year 2015-16 and is directed against the appellate order dated 16 March 2026 passed by the National Faceless Appeal Centre, Delhi. By that order, the assessee’s appeal against the reassessment order dated 7 February 2023, passed under section 147 read with section 144B of the Income-tax Act, 1961, was dismissed. The assessee is therefore before us.
